Welcoming a new baby can be a time of great joy - and great adjustment. It can also be a huge financial hit. That’s where Australia’s paid parental leave scheme can provide a safety net to new parents, supporting them to take time off to work to care for new additions to their families.
Technically speaking, being on parental leave shouldn't affect your ability to get a home loan. If you already have a home loan, parental leave payments are designed to be a financial support but may not cover your previous income. Ideally, parents-to-be will have time to consider their options before their baby arrives but life doesn't always work out that way, so let's start at the beginning.
What is Paid Parental Leave in Australia?
Paid Parental Leave is a federal government-funded scheme providing eligible parents with 22 weeks leave (as at December 2024) paid at the minimum wage to allow them to care for a newborn or newly adopted child. From July 2025, the paid leave period will increase to 24 weeks and to 26 weeks from July 2026. This can be taken before, during, or after any employer-funded leave.
History of parental leave in Australia
Prior to the introduction of the government Paid Parental Leave scheme in 2011, only four in 10 Australian parents had access to paid parental leave which varied according to their professions and employers.
While the public sector and some larger private sector employers provided paid parental leave, many parents, particularly those in lower-paid jobs, had little access to paid leave to care for a new child.
Although laws allowed women to take 12 months' unpaid maternity leave and return to their jobs, many parents relied on accumulated holiday pay or long service leave to support themselves and their families during their time away from the workforce. Others relied on savings to self-fund a period of caring for their child before returning to work.
The Paid Parental Leave scheme initially allowed 18 weeks' leave for the primary carer paid at the national minimum wage. In 2013, it was expanded to include two weeks of reserved leave for partners, called Dad and Partner Pay (DaPP), also paid at the national minimum wage.
Over the past decade, the period of paid parental leave has been extended and will increase to 26 weeks by July 2026. Partner leave period will also be extended to three weeks by July 2025 and four weeks by July 2026.
In 2020, the scheme was amended to allow greater flexibility in the use of paid leave days which can be used within two years of a child’s birth or adoption.
Can you qualify for a home loan when you’re on parental leave?
Parental leave payments are generally treated as any other income in the eyes of lenders assessing home loan applications. It is against the law to discriminate against someone on the basis of their parental status but, that said, lenders will assess home loan applications according to individual circumstances.
If you’re on parental leave, your lender may ask you for additional information so they can be satisfied you’ll be able to meet your home loan repayments in the future. You might be asked to supply:
-
proof of your previous income, such as pay slips or previous income tax documents
-
a letter from your employer confirming your intended return to work date and salary
-
evidence of employer and/or government support you’re receiving during the parental leave period
If you’re taking unpaid parental leave or plan to when your paid leave period is over, you’ll be obliged to disclose this to your lender, and they can take this into account.
Some of the big banks, such as NAB and Westpac, make it clear they take into account your parental leave payments and your expected salary when you return to work in assessing home loan applications. However, of the lenders who advertise this, many do it on the basis the parent on leave will return to work within 12 months.
Ultimately, it is up to individual lenders to decide who they will lend to based on responsible lending guidelines and their own policies. At the end of the day, lenders will need to be satisfied you will be able to make future loan repayments so it's best to be prepared for requests for additional information.
What if I am struggling to repay my home loan while I’m on parental leave?
Government-funded parental leave payments are based on the minimum wage so if you had been earning more than that before you started parental leave, your household income will likely take a hit unless your partner has been able to pick up the slack. That can be unlikely though given new children can require an all-hands-on-deck approach, particularly in the early days.
Having a child requires budgeting for the loss in income before the child comes along, but this is not always possible. Review your budget and expenses as soon as you’re able. New additions to the family can introduce new expenses, like nappies and formula, but can also reduce other discretionary spending like eating out and luxurious holidays.
See also: 60 ways to save money
If you’re struggling to meet your home loan repayments while you’re on parental leave, the first thing to do is reach out to your lender. Lenders are obliged by law to consider temporary or short-term arrangements for borrowers experiencing financial hardship. There are a number of options your lender might offer including:
Repayment holiday
Your lender might offer to suspend your home loan repayments for a short-term period or even until you’re back at work on your usual salary. This can take the pressure off, but it won’t stop interest accruing on the amount you owe on your loan. In effect, repayment holidays can see you pay considerably more in interest over the life of your loan. This needs to be taken into consideration.
Interest-only repayments
One way around the accumulation of compounding interest is to make interest-only repayments on your home loan until you get back on your financial feet again.
The vast majority of owner-occupiers make principal and interest repayments on their home loans, meaning they’re paying back some of the original sum they borrowed as well as the interest that’s accrued on it. By switching to interest-only repayments, you pay only the interest component of your loan without chipping away at the principal.
In effect, this means your repayments will be lower. But it also means they will likely be higher when the interest-only period is over as you’ll still have to pay back the principal amount over a shorter time.
See also: Interest-only Mortgage Calculator
Refinancing
Refinancing to a cheaper loan product is one way to reduce your regular repayments but it can come with an array of fees that can negate any benefit in switching to a new loan. You may be able to get around some of these if you switch to a different loan with the same lender, so it pays to approach your lender first to see what solutions they can offer you if you’re struggling with your current loan repayments.
Bear in mind that it may be more difficult to be approved for a refinance if you’re on parental leave, particularly if you now have less money coming in and more going out, and don’t have a committed date for returning to full-time work.
See also: 11 things to consider before refinancing your mortgage
Who is eligible for paid parental leave in Australia?
Now to the tintacks of who has access to Paid Parental Leave in Australia. To be eligible for a child born or adopted from 1 July 2023, all the following must apply.
You must:
-
be caring for a child born or adopted from 1 July 2023
-
have an adjustable taxable income of $175,788 or less in the 2023-24 financial year or if higher, a combined family adjustable taxable income of $364,350 or less in the 2023-24 financial year
-
not be working on Parental Leave Pay days
-
have worked for 10 of the 13 months before the birth or adoption of your child
-
have worked a minimum of 330 hours, around one day a week, in that 10-month period
-
be either an Australian citizen; on a permanent visa; a special category visa; or on certain temporary visas
-
have registered, or applied to register, your child’s birth with the relevant state or territory birth registry if they’re a newborn
Slightly different rules apply when the child was born or adopted before 1 July 2023.
Who else can get Parental Leave Pay in Australia?
It is not just birth mothers who can receive paid parental leave. You can also make a claim if you are caring for a newborn or adopted child and are one of the following:
-
the partner of the birth mother
-
the child’s biological father
-
the partner of the child’s biological father
-
the child’s adoptive parent
-
the partner of an adoptive parent
-
gaining parents in a surrogacy arrangement
-
the partner of a gaining parent in a surrogacy arrangement
-
a person caring for a child under certain exceptional circumstances (such as if the birth mother and their partner are unable to care for the child)
To claim, you must be the primary carer of the child.
When to claim to get Parental Leave Pay
There are certain timeframes to claim within to get the full entitlement of paid parental leave. You can claim up to three months before the expected birth or adoption date. By claiming early, you can choose when your Parental Leave Pay starts after your child’s birth or adoption.
When your child comes into your care, you’ll need to notify Services Australia and provide your child’s details and proof of their birth or adoption.
Employers can also opt in to claim on your behalf and will pay your leave in line with your regular pay cycle as long as they’re based in Australia, and you’ve worked for them for at least a year before the birth or adoption.
If you apply after your child’s birth or adoption, you’ve got 100 days to submit your claim and provide proof of the birth or adoption. When you claim, you can nominate to get at least one day of paid parental leave and leave the rest in balance to be used within a two-year period.
Can you claim Parental Leave Pay and employer-funded leave?
Yes. If your employer also provides its own paid parental leave scheme, you can claim the government’s Paid Parental Leave entitlement before, during, or after any paid employer-funded leave. This also includes annual leave or long service leave.
It’s up to you how you would like to spread your entitlements, however, the government-funded leave needs to be used within two years of the birth or adoption of the child.
How much unpaid parental leave are you entitled to?
By law, you are entitled to 12 months of unpaid parental leave after which time your employer must give you your old job, or equivalent, back. You can also request an additional 12 months of leave but whether this is granted is at the discretion of your employer. Your total unpaid parental leave cannot be for more than 24 months.
Savings.com.au’s two cents
Welcoming a child is a major life adjustment. Paid parental leave provides a financial cushion to allow new parents to have time off work to tend to the all-consuming task of caring for a new child.
Being on parental leave shouldn't affect your ability to secure a home loan although lenders will consider your individual circumstances. They may require further documentation and will likely inquire about your plans to return to work.
If you already have a home loan and are finding the repayments a stretch while you, or your partner, are on parental leave, the first port of call should be your lender. There are several options you can take to ease the burden in the short- to medium-term.
Ideally, planning for a new addition to the family, including financially, should happen before the child comes along but it may not always pan out that way. In any case, it's never too late to start. The government’s Moneysmart website has some good advice on budgeting for a new baby.
The government’s paid parental leave can be used in conjunction with any employer-funded leave or parental entitlements and with a partner’s entitlements to ensure you get the benefit that best suits your family’s circumstances.
The Fair Work Ombudsman and Services Australia provide comprehensive advice on your statutory parental leave entitlements. Services Australia also provides other services, payments, and information to those having a baby.
If you’re struggling with your home loan repayments or other debts before or while you’re on parental leave, it's better to act early so a solution can be found before the situation becomes desperate. Parenthood can be stressful enough without adding financial issues into the mix. The National Debt Helpline also provides free financial counselling services on 1800 007 007.
For general advice on caring for a child, including when you return to work, the raisingchildren.net.au website can be a good resource.
Image by Jonathan Borba via Unsplash
Ready, Set, Buy!
Learn everything you need to know about buying property – from choosing the right property and home loan, to the purchasing process, tips to save money and more!
With bonus Q&A sheet and Crossword!
Denise Raward
Harry O'Sullivan
Hanan Dervisevic
Aaron Bell
